Strata Building Insurance - What's Required and What's Covered

Protecting your property and your corporation

Insurance is one of the most important responsibilities for any body corporate. Getting it wrong, or letting it slide, can have serious financial consequences for every owner in the group.

This guide covers residential insurance for strata titled groups and strata division community titled groups (where one lot sits above another). We'll refer to both as body corporates throughout.

The legal requirement

Body corporates are required by law to maintain sufficient insurance to cover the full replacement of all common property. This isn't optional, it's a legislative obligation under both the Strata Titles Act and the Community Titles Act.

Understanding common property boundaries

The Acts define common property boundaries as follows:

• Walls and fences: the boundary is the inner surface

• Floors: the boundary is the upper surface

• Ceilings and roofs: the boundary is the under surface

In practice, common property includes the building structure (walls, floors, roof), boundary fences between units, roads, electrical and water supply infrastructure, sewer lines and the interior of units including the owner's walls. Fixtures and fittings inside units including kitchen cabinets, tap ware, benches or fixed air conditioning are generally considered part of the building.

What's typically covered

Standard body corporate insurance policies cover prescribed events including fire, explosion, lightning, earthquake, theft and attempted theft, deliberate or intentional acts, burst or leaking pipes and fixed apparatus and vehicle impact (including aircraft and watercraft).

Improvements must be insured

If the corporation or individual owners make improvements, whether that's a new BBQ area on common property, a pergola or a kitchen renovation inside a unit, these need to be reflected in the insurance. Owners should notify the corporation of any substantial works in their units and the corporation needs to keep the insurer informed of changes to common property or individual lots.

Getting the replacement value right

Replacement value isn't the same as market value. It needs to account for the full cost of rebuilding, including demolition, council approvals, engineering and associated professional fees. Land value is excluded - this is purely about what it would cost to knock down and rebuild.

Don't rely on the annual increase your insurer suggests. That's a rough adjustment, not a substitute for a proper valuation.

Other required cover

South Australian legislation requires body corporates to hold:

• Public liability: minimum $10 million

• Fidelity insurance: minimum $50,000 (covers theft of corporation funds; groups with no funds are exempt)

What body corporate insurance doesn't cover

• Personal contents belonging to owners or tenants

• Personal injury while inside a unit

• Certain exclusions that vary by policy. Check yours for specifics around things like landslip or flood

Every owner and tenant should have their own contents insurance and personal liability cover. Don't assume the body corporate policy has you covered for everything.

Valuations: best practice

Get a professional replacement valuation at least every five years. If your group decides against it, make sure that decision is recorded in the meeting minutes, including who voted for and against. This protects those who advocated for the valuation if the group later turns out to be under-insured.

If a group is knowingly under-insured and has voted down a valuation, those who voted against have effectively accepted the liability. In that situation, seeking legal advice and putting the group on formal notice may be appropriate.

Insurance checklist

Work through this with your fellow owners to make sure the group's coverage is fit for purpose.

Download and print the checklist here.

Get in touch

Insurance isn't the most exciting part of owning a strata property, but it's one of the most important. If you're unsure whether your group has the right cover, is due for a valuation or wants help reviewing your current policy, the Acacia Collective team is here to help. Get in touch and we'll point you in the right direction.